Trading Arcade

What Is Trading Arcade?

A trading arcade offers and manages a shared workspace used by day traders. This shared workspace is a way for the firm to collect talent, resources, education, and capital to develop and support traders who want to work in leveraged trading.

Key Takeaways

  • Trading arcades are shared workspaces catering to the needs of day traders with the goal of collecting talent, resources, education, and capital.
  • Trading arcades aren't as popular as they were in the late 1990s when digital trading was introduced.
  • Trading arcades provide day traders with resources like high-speed Internet connections, computer hardware, trading software and conference rooms.
  • Users can rent access to trading arcades or pay through a percentage of their profits.

Understanding Trading Arcade

While trading arcade firms share similarities with proprietary trading firms, their business models differ. Still, technological shifts in trading make such distinctions rather fluid over time. Trading arcade firms typically specialize in forex or futures trading.

Trading arcades became popular in the late 1990s and early 2000s as the digitization of financial markets led to the rise of day trading. As growing numbers of traders began operating from home, the need arose for shared workspace, where traders could share information and trading-related expenses. These facilities offer shared services such as high-speed Internet connections, monitors and other hardware, conference rooms, and subscriptions to trading software.

Some traders prefer trading arcades over working in isolation, due to the social environment they foster. The arcades also cut expenses by spreading the costs of shared services among members.

Trading arcades offer dynamics that led to the rise of coworking companies like WeWork. While this kind of office arrangement has become increasingly popular in recent years, the money involved in a trading arcade made it more economically viable years earlier.

Today many proprietary traders work from home or remote offices, while others will work in the firm's office with an environment similar to a trading arcade. Among proprietary firms, the best traders trade from the main office. Trading arcades attempt to maximize the use of the physical space and the benefits of having traders in proximity.

Trading arcades are mostly primarily in London, though they can be found across the globe. Trading arcades tend to specialize in forex and futures markets, where non-U.S. locations have an advantage in greater leverage and lower regulation.

Trading Arcade Business Model

Trading arcades typically make money by renting access to the shared space and its resources. To gain access, a trader will often be expected to become a member of the firm. By contributing rent toward a common set of resources, trading arcade members are able to access the space, technology, and ancillary services that were once only available to professional trading firms, and contribute to the value of the space.

Depending on the business model of the trading arcade and the size of the firm, the firm might offer services that include training, coaching, trading software, consulting services, and even financial capital; however, the latter is more commonly made available in proprietary trading firms.

Cost of Trading

Since the advent of electronic trading about two decades ago, traders have been able to access a growing wealth of information on the securities they trade. However, this access can come at a substantial cost. For instance, a single Bloomberg terminal costs around $24,000 a year.

Since most novice and intermediate traders are unsuccessful, the most common forms of a business model for the trading arcade will include making money on the churn of the new traders coming in to learn, paying for a while, then quitting the occupation.

Payment schemes vary among arcades. Some may exclusively charge monthly rents for the different tiers of service offerings, while others will secure payment in the form of a share of traders' profits.

However, the most successful firms have models giving them the incentive to train enough traders to be profitable. The firm then provides ways for these highly successful traders to trade larger amounts of capital in exchange for a profit-sharing schedule.

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